Business

All eyes on French election outcome

Global markets may breathe a sigh of relief if Macron wins

A certain je ne sais quoi quality may embrace the local bourse this week as it, together with the rest of the global financial markets, reacts to the outcome of one of the most extraordinary French presidential election campaigns.

The French voted yesterday for one of two starkly different candidates to become their president, and hours before polls opened, it became known that favourite candidate Emmanuel Macron was the target of a hacking attack.

If centrist Macron pulls off a clear win over his far-right rival Marine Le Pen, as opinion polls seem to suggest, relief would sweep across the second largest economy in the eurozone, and it would be a sure fillip for the rest of the world too.

The key question is, will he get an overwhelming mandate?

While the prime minister will come from Mr Macron's party (the president chooses the prime minister), without an outright majority, "it seems probable that it will be a struggle to pass any meaningful reforms", said Rabobank Research.

Trading sentiment at the start of the week could be chirpy in reaction to upbeat news released by the US on Friday that there was a burst in job creation last month, following a disappointing March jobs showing.

The news buoyed Wall Street last Friday - S&P 500 ended at a record-high close after gaining 0.4 per cent, Dow Jones rose 0.3 per cent and Nasdaq gained 0.4 per cent.

The latest jobs report supported the indications that the Federal Reserve provided earlier in the week - that the slowdown seen in US economic data early this year appears to be temporary, said FXTM vice-president of market research, Mr Jameel Ahmad.

"I would expect (forex) investors to take further encouragement from this jobs report that the Federal Reserve will pull the trigger on another US interest rate increase next month."

On Thursday, the Bank of England policy meeting will take place, with most economists expecting no change to monetary policy.

But the focus will be on the inflation report, said IG Asia market strategist Jingyi Pan.

"The market largely appears torn with regards to the outlook of the economy against the backdrop of Brexit negotiations, and the guidance from the central bank could deal an impact on the market," Ms Pan added.

The data docket includes more figures out of the US, such as price inflation updates and retail sales this week.

It could suggest that recent weakness in inflation and consumption was temporary; or it could renew concerns that the weak March data is more persistent.

China will also release last month's trade and price inflation data.

Citi Research expects a moderate pick up in China's CPI inflation last month, and export growth is likely to moderate while imports may be led by stronger domestic demand.

In a second quarter outlook report, Goldman Sachs Asset Management pointed out that global growth and earnings forecasts are trending upwards in all major regions for the first time since 2010.

US equities have reached all-time highs, and valuations are more expensive in many regions globally than before the US presidential election in November last year.

"However, this pervasive optimism needs to be converted to corporate confidence in order to ignite animal spirits, sustain business activity and maintain investor enthusiasm.

The Straits Times Index put up a good showing in the previous week after it closed 54 points or 1.7 per cent up. Corporate earnings are likely to guide investment decisions this week.

This article appears in The Business Times today. For full listings of SGX prices, go to http://btd.sg/BTmkts